A
Appreciation
The increase in a property's value over time. Can be driven by market conditions, improvements, or inflation.
Example: You bought a property for $200,000. Five years later, it's worth $250,000. That's $50,000 in appreciation (25%).
Amortization
The gradual paydown of a loan's principal balance through regular payments. Early payments are mostly interest; later payments are mostly principal.
B
BRRRR Method
Buy, Rehab, Rent, Refinance, Repeat. An investing strategy where you buy a distressed property, fix it up, rent it out, refinance to pull your capital back out, then repeat with another property.
C
Cap Rate (Capitalization Rate)
Net Operating Income divided by property value. Measures the return you'd get if you paid all cash. Higher cap rates = higher returns (usually also higher risk).
Example: Property worth $300,000 with $18,000 NOI = 6% cap rate ($18,000 ÷ $300,000).
CapEx (Capital Expenditures)
Major expenses for replacements and improvements: new roof, HVAC system, appliances. Different from regular maintenance. Typically budget 8-12% of gross rent.
Cash Flow
Money left over after all expenses (mortgage, taxes, insurance, maintenance, vacancy, property management) are paid. Positive cash flow = profit each month.
Example: Rent $2,000/month, total expenses $1,600/month = $400 positive cash flow.
Cash-on-Cash Return
Annual cash flow divided by total cash invested (down payment + closing costs + repairs). The actual return on your out-of-pocket money.
Example: $5,000 annual cash flow ÷ $50,000 invested = 10% cash-on-cash return.
Comps (Comparables)
Recently sold or rented properties similar to yours in the same area. Used to determine fair market value or rent.
COC
See Cash-on-Cash Return.
D
Depreciation
IRS allows you to deduct the theoretical wear and tear on your rental property over 27.5 years (residential) or 39 years (commercial). Major tax benefit of real estate investing.
Example: $275,000 property basis ÷ 27.5 years = $10,000 annual depreciation deduction.
DSCR (Debt Service Coverage Ratio)
Net Operating Income divided by annual debt payments. Measures ability to cover the mortgage. Lenders typically want 1.2+ (income is 20% higher than debt).
Example: $24,000 NOI ÷ $20,000 annual debt = 1.2 DSCR.
E
Eviction
Legal process to remove a tenant who has violated the lease (typically non-payment of rent). Requires following state-specific procedures and timelines.
Equity
The portion of the property you actually own (property value minus remaining mortgage). Builds through appreciation and principal paydown.
Example: $300,000 property with $200,000 mortgage = $100,000 equity.
F
Fair Housing Act
Federal law prohibiting discrimination in housing based on race, color, national origin, religion, sex, familial status, or disability. Landlords must comply.
G
GRM (Gross Rent Multiplier)
Purchase price divided by annual gross rent. Quick way to compare properties. Lower GRM typically = better deal. Typical range: 8-15.
Example: $200,000 price ÷ $20,000 annual rent = 10 GRM.
H
HOA (Homeowners Association)
Organization that makes and enforces rules for a community. Charges monthly/annual fees. Common in condos and townhouses. Can restrict rentals.
I
IRR (Internal Rate of Return)
The annualized effective compounded return rate that accounts for cash flow, appreciation, and loan paydown. More complex than cash-on-cash but more accurate for long-term investing.
N
NOI (Net Operating Income)
Total rental income minus operating expenses (not including mortgage). Used to calculate cap rate and value. Key metric for analyzing properties.
Example: $24,000 annual rent - $6,000 expenses = $18,000 NOI.
O
1031 Exchange
IRS rule allowing you to defer capital gains taxes by selling one investment property and buying another "like-kind" property. Strict timelines: identify replacement within 45 days, close within 180 days.
1% Rule
Quick screening rule: monthly rent should be at least 1% of purchase price. A $200,000 property should rent for $2,000/month. Not achievable in all markets but useful as a filter.
Operating Expenses
Ongoing costs to operate the property: property taxes, insurance, maintenance, property management, utilities, HOA fees. Does NOT include mortgage (that's debt service).
P
PITI
Principal, Interest, Taxes, Insurance. The four components of your total monthly mortgage payment.
Pro Forma
Projected financial statements showing expected income and expenses for a property. Used before purchasing to estimate returns.
R
ROI (Return on Investment)
Total gain from an investment relative to the cost. For rental properties, includes cash flow, appreciation, loan paydown, and tax benefits.
Rent Control
Government limits on how much rent can be increased. Common in cities like San Francisco, New York, Los Angeles. Restricts landlord's ability to raise rent to market rates.
S
Security Deposit
Money collected upfront to cover potential damage or unpaid rent. State laws dictate maximum amounts, return deadlines, and interest requirements.
50% Rule
Budgeting rule estimating that 50% of gross rent goes to operating expenses (not including mortgage). The other 50% covers debt service and cash flow.
T
Turnkey Property
A fully renovated rental property, often with a tenant already in place. Ready to produce income immediately. Usually sold by turnkey companies at a premium price.
Turnover
When a tenant moves out and you need to prepare the property for a new tenant. Includes vacancy period, cleaning, repairs, marketing. Costs $3,000-5,000 on average.
V
Vacancy Rate
Percentage of time a property sits empty. Used in cash flow calculations. Standard assumption: 5-8%. Lower is better.
Example: Property rented 11 months, vacant 1 month = 8.3% vacancy rate.
Y
Yield
The income return on an investment, typically expressed as a percentage. In real estate, often refers to rental yield (annual rent ÷ property value).